ZhaoYin International: Maintains Buy rating on SINO BIOPHARM with a target price of HKD 9.4

According to the Zhengtong Finance APP, CMB International has released a research report stating that it maintains a "Buy" rating for SINO BIOPHARM (01177) with a target price of HKD 9.40. The target price is based on DCF at HKD 9.40 (WACC: 10.01%, perpetual growth rate: 2.0%). The firm expects SINO BIOPHARM's revenue growth rates for 2025E/26E/27E to be +19.1%/+4.4%/+10.6%, with adjusted net profit growth rates of +81.3%/-30.0%/+11.3%. Due to cautious considerations, the firm has not yet accounted for the potential contributions of external licensing to revenue and profit.

CMB International's main viewpoints are as follows:

SINO BIOPHARM announced the Phase II clinical results of its PDE3/4 inhibitor TQC3721 at the European Respiratory Society 2025 conference.

The clinical results show that TQC3721 can rapidly improve patients' lung function and symptoms. Among 240 moderate to severe Chinese COPD (Chronic Obstructive Pulmonary Disease) subjects, those treated with TQC3721 for 4 weeks showed a peak FEV1 (Forced Expiratory Volume in 1 second) that was 100ml/147ml higher than the placebo group in the 3mg/6mg groups, respectively. In the LAMA and LABA/LAMA subgroups, the 6mg group had a peak FEV1 that was 239ml and 109ml higher than the placebo group, respectively. The FEV1 AUC (0-12h) of the 6mg group was 87ml higher than that of the placebo group, and the SCRQ (St. George's Respiratory Questionnaire) score improved by 5.09 units compared to the placebo group. TQC3721 demonstrated good safety and tolerability, with no significant adverse effects observed in the gastrointestinal, cardiovascular, or liver and kidney functions during the clinical trial. As the second in global R&D progress and currently the only PDE3/4 inhibitor in Phase III clinical trials, the firm believes TQC3721 has the potential to become a blockbuster drug and also has significant external licensing potential.

Clinical data indicate that TQC3721 has best-in-class potential.

The FEV1 peak of the TQC3721 6mg group after 4 weeks of treatment was 147ml higher than that of the placebo group, consistent with the 12-week clinical data of the ensifentrine group (146/147ml. Non-head-to-head data comparison, same below). The FEV1 AUC (0-12h) was 87ml higher than the placebo, also at the same level as the ensifentrine group's 12-week data (87/94ml). Notably, all subjects in the TQC3721 clinical trial had received COPD medication treatment, with 30% using LAMA (long-acting anticholinergic drugs) and 70% using both LABA (long-acting β2 agonists) and LAMA drugs, while about 38% of subjects in the ensifentrine group's clinical trial were treatment-naive patients. Therefore, the baseline of patients enrolled in the TQC3721 clinical trial was worse. Considering that COPD patients generally use LABA, LAMA, or ICS (inhaled corticosteroids) in real life, the firm believes that TQC3721's FEV1 data indicates significant potential for improving the real clinical benefits for COPD patients. Clinical data also show that in the subgroup using LAMA drugs, the FEV1 peak of the TQC3721 6mg group was 239ml higher than that of the placebo group, significantly higher than the 135ml of the ensifentrine group The market potential for PDE3/4 drugs is enormous, and the competitive landscape is favorable

COPD is one of the most common respiratory diseases, with nearly 480 million patients worldwide and over 100 million in China. As the third leading cause of death globally, COPD severely impacts the global economy and healthcare systems. Verona's ensifentrine is set to receive FDA approval in June 2024, marking the first new mechanism COPD drug approved by the FDA in over 20 years and the only approved PDE3/4 inhibitor to date. Sales for ensifentrine are projected to be USD 71 million in Q1 2025 and USD 103 million in Q2 2025, representing quarter-on-quarter growth of 95% and 44%, respectively. Merck announced in July this year that it would acquire Verona for USD 10 billion, reflecting the enormous market potential of PDE3/4 inhibitors. As the second globally and the only PDE3/4 inhibitor currently in Phase III clinical trials, the firm believes TQC3721 has significant potential for overseas licensing